How to deal with market volatility
Market volatility is something that has been around forever and will continue to be around. The stock market doesn’t go up every day. Pullbacks, market corrections, and bear markets are all part of the market cycle. So, what can we do during times of market volatility?
Here are a few things to consider during market volatility.
- Stick with Quality – Market turbulence is often unbiased and can cause a pullback in even the best companies. High quality, blue-chip investments with a proven track record of earnings or dividend payout can be dragged down along with the most speculative companies. If this happens, you may want to consider shifting from something you no longer want to own to something you do, or upgrade the quality of your investment holdings. If the business outlook for the company you own has not changed, it is likely the share price will be restored when the market recovers. These market pullbacks can give you an opportunity to add to an existing or a new quality investment.
- Listen for the knock of opportunity – The great part about market volatility is that it can present buying opportunities for long-term investors who have cash in their portfolios earmarked for equity purchases. Those who add to investments when markets pull back typically do incredibly well when they rebound. Although this might be one of the hardest things to do, it is often the right thing. Also, if you have noticed your investments have done well and realized their full value, you may want to take profits and rebalance.
- Remember the big picture - Dramatic markets make good headlines, but they need perspective. Volatility is typically a short-term phenomenon measured in days, weeks, and months. Over the years the historic performance of the stock market is a reflection of the growth in the economy and the businesses that contribute to that growth. Long-term investors can take comfort in the steady increase in value that major stock markets have shown over the years.
- Drown out the background noise - The media coverage of volatile markets can range from rational and insightful analysis to end-of-the-world headlines. With this in mind, try to filter out the background noise and resist falling prey to the herd mentality during turbulent markets. If you listened to everything the news was telling you, you would likely never have invested in the first place.
- Think Strategically - Talk to your financial advisor to ensure your investment strategy is structured to ride through volatile and uncertain investment periods. If changes should be made in terms of asset allocation, investment diversity, or risk tolerance, there is no time like today to consider rebalancing your portfolio.
- Have a plan and stick to it - The most successful investors may follow the day-to-day drama of the markets, but they stick to the strategy they put together in calmer times and let patience—not panic—determine the long-term success of their investments. A well-planned strategy takes into account several important factors, such as your long-term objectives, tolerance for risk, time horizon, and amount of investable assets. This will result in a well-thought-out, broadly diversified portfolio that incorporates different asset classes and investment styles, as well as balances risk and safety, growth and income, and domestic and foreign exposure. Such a portfolio can substantially smooth your journey through rough markets, thus reducing the need to take any unnecessary action.
Do you call your real estate agent every month to find out the value of your home? No, you don’t. Would you sell your home if you saw the value of it declining? Likely not as you need to live somewhere. It is important to treat your investments the same way and not make decisions on the day-to-day or month-to-month fluctuations. Grab a coffee and relax, let your advisor worry about your investments.
Todd Yuzdepski, CFP, CIM, FCSI, BA
Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Todd Yuzdepski, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.